The decision was taken at a cabinet meeting presided over by Chief Minister Sheila Dikshit.
She said at least 50 per cent of the 200 beds in the hospital would be reserved for maternal child health care.
"The hospital will be a modal health care facility in the area. It will be a multi-speciality hospital having departments such as internal medicine, general surgery, obstetrics, gynaecology, paediatrics and orthopaedics," Dikshit said.
The Health department has engaged National Building Construction Corporation (NBCC), a government of India Enterprise, for construction of the hospital.
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He said government has taken possession of a 10,000 square metre plot for construction of the hospital.
The hospital would be constructed as per green building concept.
The Chief Minister said the Cabinet has also approved a proposal to set up a new cadre -- Delhi Health Services (Dental Surgeon Cadre) -- for appointment of dentists in government-run hospitals.
The cabinet has been authorised the Health Department to take steps including holding of consultations with the UPSC for framing of the service regulations.